Oil prices dropped significantly on Monday as financial markets responded to signals that the United States and Iran may be approaching a peace agreement that could reopen the Strait of Hormuz, a critical artery for global energy trade. Brent crude, the primary international benchmark, fell more than five percent to around $97.90 a barrel in Asian trading, while US-traded crude dropped nearly six percent. Asian stock markets rose in tandem, with Japan's Nikkei 225 index surging more than three percent to surpass 65,000 points for the first time — a record high — as investors in countries heavily reliant on Gulf energy, including Japan and South Korea, welcomed the prospect of restored supply routes.
The optimism stems from statements made by US President Donald Trump over the weekend. On Saturday, Trump announced on social media that a deal had been "largely negotiated" involving the US, Iran, and several other nations, and that terms would include reopening the Strait of Hormuz. He also described positive calls with the leaders of Saudi Arabia, the United Arab Emirates, Qatar, and Israeli Prime Minister Benjamin Netanyahu. However, Trump tempered expectations on Sunday, posting that both sides should "take their time and get it right," cautioning against rushing to an agreement. Iran's foreign ministry acknowledged that positions had been "converging" but warned that key issues remained unresolved and criticised what it called "contradictory statements" from Washington.
The Strait of Hormuz — a narrow waterway between Iran and the Arabian Peninsula — has been effectively blockaded since the conflict began on 28 February, disrupting roughly one-fifth of the world's oil and liquefied natural gas trade. Iran closed the strait in retaliation for US and Israeli military operations, and the US subsequently imposed its own blockade of Iranian ports in mid-April. Trump confirmed on Sunday that the US blockade would remain in place until any agreement is "certified and signed." Analysts estimate that 10 to 11 million barrels of crude per day have been cut off for every day the strait remains closed, with an estimated 100 million barrels now stranded on ships awaiting passage.
Even under an optimistic scenario, energy experts warn that normalisation will take considerable time. Analysts at Sparta estimate three to six months would be needed to restore production, bring refineries back online, and clear the backlog of stranded vessels. Other research indicates that if the strait remains closed and oil inventories in wealthy OECD nations continue depleting at April's record pace, stocks could reach critically low levels by the end of June — potentially pushing Brent crude to $130–$140 a barrel and triggering severe "demand destruction," where high prices force consumers and industries to cut consumption sharply.
Beyond the oil market itself, the disruption has already spread to liquefied natural gas, fertilisers, freight costs, and industrial inputs, compounding economic pressures globally. American households have collectively paid an estimated $40 billion in additional fuel costs since the war began, despite the US being a net crude exporter. Even if a deal is struck and the strait reopens, analysts caution that the global energy system is likely to remain tighter and more fragile than before the conflict, and that the episode may have semi-permanently raised the cost of global commodities by demonstrating the vulnerability of key shipping routes.